Company Coverage - Del Monte Pacific Limited

From Company's Website

1. Business Description

Market leader in the Philippines. Del Monte Pacific Limited (DMPL) Group owns the Del Monte brand in Philippines for processed products and owns a leading market shares for canned pineapple juice and juice drinks, canned pineapple and tropical mixed fruits, tomato sauce, spaghetti sauce and tomato ketchup.

Owns S&W which distribute in Asia, Europe and Middle East. DMPL also owns another highly recognized premium brand, S&W, globally except in Americas, Australia and New Zealand.

Exposures in Indian subcontinent and Myanmar as well. DPML owns approximate 92% of a holding company that in turn owns 50% of FieldFresh Foods Pte Ltd in India. FieldFresh markets Del Monte-branded processed products in the domestic market and Fieldfresh-branded fresh produce. Del Monte Pacific's partner in Fieldfresh Foods is the Bharti Enterprises, a conglomerates in India.

Del Monte Pacific also holds the exclusive rights to produce and distribute processed food and beverage products under the Del Monte brand in the Indian subcontinent and Myanmar.

Philippines' Campos family is the ultimate shareholders. Note that DMPL is not affiliated with other Del Monte companies in the world. DMPL is 79% owned by NutriAsia Pacific Ltd (NPL). NPL is owned by the NutriAsia Group of Companies which is majority-owned by the Campos family.

Below provides a overview of its global distribution:

From Company's Website

2. Business Operations

One of the world's largest integrated pineapple operations. DMPL operates one of the world's largest integrated pineapple operations with a 23,000 hectare pineapple plantation in Philippines, 700,000 ton processing capacity and a port beside the Cannery.

From Company's Website

Philippine is DMPL's main market. Domestic Philippine market generated 70% of sales and 89% of operating profit and continues act as a core market for DMPL.

From Company's Website

Below provides a finer breakdown of DMPL’s geographical markets, products and customers:

From Company's Website

3. Valuation

a. PE Perspective

Base on PE, DMPL looks expensive compared to the other Philippine’s players. (see table below) 

Source: Bloomberg Terminal

Some analysts argued that the high valuation is justifiable given that DMPL has the ability to generate superior growth rate and higher margin is the next few years.

Well, I do agree that this is a valid pointer although I personally don’t like to buy a high valuation company.

b. Book Value

Based on its 1Q13 reported NAV, it is trading at US$0.2235 cent and with its share price of S$0.84, 2.95X of its book value.

This is another hint of how bullish market thinks that the business will grow.

c. Analysts call

Since the analyst research papers are easily available from its IR site (see below), I should not try to dispute their work and will just present the various call by the analysts below.

One thing to note is that given the current momentum, it seems that the analysts are very bullish on DMPL and that to a certain extent will provide some trading momentum for it.

Source: Bloomberg Terminal

4. Investment Highlights

Below is a detailed presentation by the IR team on what they think are the key highlights for investing in DMPL:

From Company's Website

5. Investment Risk

Valuation looks stretched. To me, I think the valuation for DMPL looks obviously stretched. This is a barrier of entry for me although I do like the business and its management.

Concentration risk. Note that DMPL obviously has a very concentrated revenue base in Philippines and their reliance on pineapple. Their competitors for pineapple are the guys around the region, eg. Thailand, and an oversupply can lead to poor pineapple prices.

Loss in non-core segment. As rightfully pointed out by the analysts, its non-core segment like the Indian JV have been losing money amid at a slowing down pace.  

6. Conclusion

This is somewhat tricky.

Obviously I like the business on a long term perspective given the whole bullishness around Philippines but obviously the valuation today looks stretched.

Thus I will, at a lower valuation, look to add it into my Long Term investment portfolio as I’m willing to hold it for a long time as I like the business and I think the Campos family has done a decent job since taking over the company in 2006.

However, I will wait for a better entry price.

Nevertheless, I might choose to trade the company. I think the company is just starting to get more attention by the market and at around the S$0.80 level (if it fail to breach through it), one can initiate a buy on it.

Look to take profit when it approaches its recent high of around S$0.945 level.

Thus best way to play for myself might be buying at S$0.80, TP at S$0.90 with a S$0.10 profit.  

Source: Yahoo Finance, Singapore

Other Useful Link

Frankly, I’m very impressed by the company IR and web design.

They are very transparent about the company and provide a lot of useful links for investor to understand DMPL.

You can log on to the IR page here:

http://www.delmontepacific.com/Website/Content.aspx?i=59

There is a very useful section call “Downloadables” whereby you can download and understand the company better.

For a quicker assesses to the analyst coverage & reports, you can refer to the link below:

http://www.delmontepacific.com/Website/Content.aspx?i=47